Caine v Lumley General Insurance Limited

Caine v Lumley General Insurance Limited - [2008] NSWCA 4 - NSWCA 2007 case summary — Zoe

[19]

5 Work to the annexes or roofs of the caravans requires the approval of the Tweed Shire Council, which has adopted a policy that requires, inter alia, a Development Application to be lodged, an engineer's certificate to be provided and, in the case of annexes, that the floor height be raised to a level designed to avoid flooding: primary judgment (at [6]). 6 On January 16, 2002, the caravan park was struck by a severe storm, including hail and torrential rain, which caused damage to the house located on the park premises as well as to 25 of the caravans and tropical roofs and to 24 of the annexes: primary judgment (at [8]). 7 The appellants claimed under the Policy. Pursuant to the Basis of Settlement clause in the Policy (cl D) they were entitled to be paid the reinstatement value of the property damaged. They estimated the costs of reinstating the caravans alone at $97,500, the costs of reinstating the tropical roofs at $83,031 and the annexes at $477,903. The respondent paid them $100,000 in respect of the damage to the caravans (which it asserted included the annexes and tropical roofs), $35,000 in respect of business interruption; and $700 in respect of damage to the residence but said that was the limit of its liability under the Policy. 8 It is the payment of $100,000 which gives rise to the substantial controversies which arose at trial and in this Court. They were whether or not the reference in the Policy to "caravans" included the annexes and tropical roofs and, if it did, whether the damage to the caravans was caused by hail thus attracting an exclusion clause, E15, which capped recovery at $100,000. The primary judge found in the respondent's favour on this issue. The other substantial issue was whether, assuming E15 applied, extra costs of reinstating the caravans of approximately $72,000 which arose as a result of Council requirements imposed pursuant to the policy earlier referred to, were capped by the $100,000 or payable in addition to that sum pursuant to cl D5. The primary judge did not directly resolve that issue. 9 For the reasons which follow I am of the view that the primary judge correctly resolved that the reference to "caravans" included the tropical roofs and annexes and that the proximate cause of the damage was hail so cl E15 applied to cap recovery at $100,000. I am also of the view that the D5 costs are recoverable in addition to the $100,000. The issues 10 The primary judge identified the issues as appearing to include (primary judgment at [13]):

[29]

(a) $95,700 for caravans, including annexes and tropical roofs (b) $72,808 in respect of the extra costs of reinstating the annexes and tropical roofs so as to comply with Council requirements (i.e. DA fee and engineering certificates for both the annexes and the tropical roofs and the extra cost of compliance of $2240 for each annex floor)." 13 The appellants also claimed that it was unreasonable for the respondent not to make any of the above payments at the latest by January 2003. They sought to recover interest pursuant to s 57 of the Insurance Contracts Act 1984 (Cth) on whatever sum was allowed by the Court at 11% per annum from 16 January 2003 to the date of judgment. 14 The appellants quantified their claim by reference to the following facts to which the parties agreed for the purposes of the proceedings: primary judgment (at [14]): "i. As at the date of commencement of the period of insurance, namely 19 October 2001 ('Commencement Date'), the plaintiffs owned 26 caravans on-site at 109 Chinderah Road, Chinderah, ii. Each of the caravans referred to in paragraph 1 had an annex adjoining it to one side and also a structure built over it known as a 'tropical roof'. iii. As at the Commencement Date the cost of replacing each tropical roof was $4,534.75. iv. As at the Commencement Date the cost of replacing each of the timber-frame/vinyl annexes to its existing specification was $17,382.50. v. As at the Commencement Date the cost of replacing each of the other types of annexes to its existing specification was $20,449.93. vi. As at the Commencement Date, there were 26 tropical roofs. vii. As at the Commencement Date, there were 5 timber-frame/vinyl annexes. viii. As at the Commencement Date, there were 21 other annexes. ix. On 16 January 2002, 25 tropical roofs were damaged by hail. x. On 16 January 2002, 5 timber-framed/vinyl annexes were damaged by storm including hail and torrential rain. xi. On 16 January 2002, 21 of the other annexes were damaged by storm including hail and torrential rain. xii. Damage was caused to the caravans by storm including hail and torrential rain resulting in the need to repair or replace them at the cost per caravan as set out in the first column of amounts in the attached schedule marked 'A'. xiii. Damage was caused to the tropical roofs by hail, resulting in the need to repair or replace them at the cost per tropical roof as set out in the second column of amounts in the attached schedule marked 'A'. xiv. Damage was caused to the annexes at each of the caravan sites by storm including hail and torrential rain resulting in the need to repair or replace them at the cost per annexe as set out in the third column of amounts in the schedule 'A'. xv. Included in the costs set out in the second and third columns of amounts in schedule 'A' are the cost of an engineer's certificate of compliance and the council's D.A. fee for each tropical roof and each annexe. xvi. The extra cost of reinstatement of each annexe necessarily to be incurred by the plaintiffs to comply with the requirements of any statute or regulation or of any municipal or statutory authority would include the amounts set out in the fourth column of amounts in schedule 'A' in respect of each site number set out therein. xvii. The figure of $2,240 as set out in the fourth column of amounts in schedule 'A' does not include the cost of engineer's certificates of compliance or Development Application fees and is additional to the amounts set out in the 3rd column of amounts. xviii. The cost of obtaining an engineer's certificate of compliance in respect of each rebuilt or repaired tropical roof or annexe is $287. xix. The cost of lodging a Development Application with the local council in respect of the rebuilding or repair of each tropical roof or annexe is $101.75. xx. It will be necessary for the plaintiffs to obtain an engineer's certificate of compliance in respect of 25 of the tropical roofs. xxi. It will be necessary for the plaintiffs to obtain an engineer's certificate of compliance in respect of 24 of the annexes. xxii. It will be necessary for the plaintiffs to lodge a Development Application in respect of 25 tropical roofs. xxiii. It will be necessary for the plaintiffs to lodge a Development Application in respect of 24 annexes. xxiv. The defendant paid the plaintiffs $700 on 14 July 2005 in satisfaction of the remainder of their claim on the policy relating to the residential premises. xxv. The defendant paid to the plaintiffs $100,000 on 7 February 2003 in respect of damage to caravans. xxvi. The defendant paid $35,000 to the plaintiffs on 7 February 2003 in respect of business interruption."

[76]

The reference to "Limit of Indemnity" in this part of his Honour's judgment was erroneous. That phrase does not appear in either the Schedule or Section 1 of the Policy. It was clearly intended to be a reference to the words "Limit of Liability" which are used. The appellant faintly suggested that this had led his Honour into error in construing the Policy. 32 The appellant accepts the finding in paragraph [45] for the purposes of its claim under cl C, Additional Cover, but contends the primary judge did not apply it, because in dealing with this issue he applied the limit of $100,000 in E15, not the limit of $655,300 in the Schedule: primary judgment (at [102]). 33 The question whether exclusion E15 applied, and to what extent, turned on whether the reference to caravans in that clause included the annexes and tropical roofs, and whether the damage to them was caused by hail. It was common ground that four of the annexes were of aluminium foam sandwich construction and, too, that the hail which fell during the storm "penetrate[d] the entire thickness of the material damaged, causing water to enter". 34 The primary judge held that the word "caravan[s]" in the Policy was used to describe the permanent or semi-permanent structures at the appellants' Tourist Park and that those structures incorporated a stationary van, an annex and tropical roof, together with various other appurtenances, such as frames, walls, doors, steps and slabs: primary judgment (at [48]). The "annexes" and "tropical roofs" were not separate structures: primary judgment (at [49]). He rejected as misconceived the appellants' argument that the meaning of "caravan" should be determined by reference to dictionary definitions of that word as being inconsistent with the context in which the word "caravan" was used in the Policy: primary judgment (at [50] - [52]). He found contextual support for that construction in the reference to "structure" in E14 and the exclusion of cover for damage to "Vehicles or trailers registered or licensed to travel on a public road" in E4. He also accepted that the Schedule supported that conclusion as it demonstrated the parties' intention that all materially valuable items be separately listed and ascribed a declared value. The absence of any separate listing for annexes and tropical roofs supported the conclusion that they were to be treated as part of a caravan and hence subject to the caravans' indemnity: primary judgment (at [61] - [62]).

[86]

Grounds of appeal 42 The Notice of Appeal raises the following grounds: "1 His Honour erred in failing to find that the Appellants were entitled to recover, in addition to what the Respondent had already paid, the extra costs of reinstatement pursuant to Paragraph 5 of "Clause D Basis of Settlement" of the policy and that such amount was not subject to any monetary limit. 2 His Honour failed to give adequate reasons in that he failed to make any findings as to the extra cost of reinstatement under paragraph 5 of "Clause D Basis of Settlement" of the policy despite acknowledging it as an issue for consideration. 3 His Honour erred in finding that the amounts in the policy schedule which appeared as "Declared Assets" constituted limits or sub-limits for the purposes of the policy. 4 His Honour erred in failing to find that the Appellants were entitled to recover, in addition to what the Respondent had already paid, the costs of engineers' certificates and council development application fees pursuant to paragraph 1 of "Clause C Additional Cover" of the policy and that such amounts were not subject to any monetary limit. 5 His Honour erred in failing to give adequate reasons as to which limit or sub-limit applied to the additional costs under Clause C so as to result in no further entitlement to the Appellants under the policy beyond what the Respondent had already paid when there was a limit of liability of $655,300 which had not been exhausted or at very least a "declared asset" of $192,000 for caravans which had not been exhausted. 6 His Honour erred in relying upon the (incorrect) fact that the words "limit of indemnity" appeared in the schedule in finding that the "declared assets" were limits or sub-limits for the purposes of the policy. 7 His Honour erred in finding that the annexes and tropical roofs that were attached to the caravans were parts of "caravans" for the purposes of the policy. 8 His Honour erred in finding that the costs of repairing the caravans (including the annexes) was subject to a monetary limit of $100,000. 9 His Honour erred in his construction of Clause E of the policy by failing to find that the Respondent had the burden of proving that hail was the only proximate cause of the loss before the clause would operate. 10 His Honour erred in failing to find that hail was not the only proximate cause of the loss." 43 The appellants' written submissions identified the following major issues as arising from the grounds of appeal: "(a) Were the annexes and/or tropical roofs to be treated as 'caravans' for the purposes of the policy or were they to be treated as individual and separate items?

[95]

51 He pointed out that cl E11(c) distinguished between caravans and annexes. He contended that the common usage of the word "caravan" did not connote an annex. He relied upon the Australian Design Rules for Motor Vehicles and Trailers, clause 7.1 of which defines a "caravan" as an "enclosed trailer which is intended for use as a mobile home or living quarters when parked" and also on the Macquarie Dictionary definition of "caravan" as "a vehicle in which people may live, whether temporarily or permanently, usually having two wheels and designed to be drawn by a motor car" and on the Local Government (Caravan Parks, Camping Grounds and Moveable Dwellings) Regulation 1995 which he argued treated caravans and annexes as two distinct and different items. 52 Next Mr Seton argued that if the Court was to conclude that tropical roofs and annexes did not constitute caravans for the purposes of E15, neither was an "Other Structure" so as to be subject to the declared asset sum of $15,000 in the Schedule. He observed that "Other Structures" was not a defined term. The only guidance as to its meaning was the example in the Schedule of "power heads/poles and office contents". He contended that a fixed structure such as a tropical roof or an annex would not fall within that class. 53 Accordingly, he argued that tropical roofs and annexes were subject to no policy limit other than the overall Limit of Liability for a Material Damage claim of $655,300. 54 Mr J Kelly of Senior Counsel, who appeared for the respondent at trial and on appeal, submitted the primary judge's reasoning was correct. He argued that the critical question was whether tropical roofs and annexes were parts of caravans, not whether they were caravans. He pointed out that the appellants did not challenge the factual findings which underpinned his Honour's conclusion and which related to the locus in quo. He contended that the question whether the annexes and/or tropical roofs were parts of "caravans" turned on the interpretation of the Policy, as opposed to general statements about the nature of caravans. He also criticised Mr Seton's argument that a tropical roof was a fixed structure as opposed to a caravan capable of being transported from place to place, pointing out that that argument flew in the face of the primary judge's finding that the caravans in the appellants' caravan park were permanent or semi-permanent structures.

[100]

(f) It was a misuse of language to describe annexes and tropical roofs as anything other than a part of the relevant whole, the parts of which had to be consistently treated as such: primary judgment (at [59])." 57 In my view the primary judge's reasoning is compelling. The overwhelming conclusion to be drawn from the Policy is that it was intended to cover the "structures" which the appellants offered as accommodation. Those structures comprised the caravans, of which the tropical roofs and the annexes were a part. It is evident that a caravan in situ could not become mobile without the structure of which it was an integral component being dismantled. The caravans were let as a whole with tropical roof and annex attached. The commercial object of the Policy was to insure those structures, not their individual components. This conclusion, as his Honour found, is supported not merely by the stark absence of any separate reference in the Schedule to the tropical roofs or the annexes, but also by his Honour's factual findings concerning the nature of the structures themself. 58 This raises the question whether the items listed in the Policy Schedule were an exhaustive list of the Property Insured. In my view it was. 59 The general insuring clause made the respondent's liability to indemnify the appellants subject to the terms and conditions of the Policy and the specified sections of the Schedule, provided that its liability was not to exceed, inter alia, the Sum Insured or any specific sub-limits in the Schedule or any specified Section of the Policy. 60 The extent of cover clause in Section 1 provided that the respondent would, inter alia, indemnify the appellants "up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule". The Schedule both set out the details of the appellants' cover (see definition of "Schedule" in the General Definitions) and represented the appellant's declaration of the value of the "Property Insured". Although the definition of the latter concept was broad, it was refined in relation to the particular risk by the requirement that the appellants declare the value of the "Property Insured" at each Situation, calculated in accordance with the Basis of Settlement clause. 61 Thus the enumeration of property and values in the Schedule under the heading "Material Damage Declared Assets" represented, in my view, the appellants' identification of the property at the caravan park which they had insured for material damage. The identification of "caravans" in the Schedule without reference to the tropical roofs or annexes demonstrated objectively that those three structures were regarded as constituting a "caravan" for the purposes of the listing "Caravans Indemnity". This conclusion is reinforced by the enumeration of other items of property in the Schedule such as machinery (including hose reels), barbecues, pergolas, washers and dryers. A Schedule which descends to that level of particularity cannot sensibly be understood to have excluded what on the appellants' case were the most substantial items of property at the caravan park. 62 Accordingly, in my view an objective interpretation compels the conclusion that the list of "declared assets" in the Schedule was intended to comprehend all the major items of property at the caravan park and that the reference to "caravans" both in the Schedule and E15 was intended to encompass the entire structure. 63 Mr Seton's submissions, in my view, tended to focus on the hypothetical rather than the reality of the structures at the caravan park. Thus he prayed in aid the Local Government (Caravan Parks, Camping Grounds and Moveable Dwellings) Regulation 1995 which he argued clearly distinguished between caravans and annexes. He also submitted that caravans could be distinguished from annexes and tropical roofs because the former were self-supporting structures which could stand in the event a caravan was driven away, while the latter would have to be removed if a caravan was driven away. 64 However the requirements of the Regulation cannot, in my view, govern the interpretation of a Policy intended to apply to the particular caravan park and the risks to which the Policy responded. Nor, to take another example alluded to in the course of argument, can the fact that the Residential Parks Act 1998, which applies to caravan parks, contemplates that structures within such parks, including manufactured homes (which are referred to in E14), are moveable dwellings: see s 3 and PricewaterhouseCoopers Legal v Perpetual Trustees Victoria Limited [2007] NSWCA 271 (at [77]) per Ipp JA (Giles JA and McClellan CJ at CL agreeing). 65 Further, hypothetical possibilities about what would happen if the caravans were dismantled cannot displace the primary judge's factual findings about the nature of the structures in situ. The interpretation of the Policy, as I have said, must be undertaken in the light of the commercial circumstances it addressed, and the objects which it was intended to secure. It was intended to cover a caravan park in which the caravans were constructed as permanent or semi-permanent structures, each with a tropical roof and an annex attached and which were let on a virtually permanent basis to residents of the park.

[103]

The cause of the damage (grounds 8, 9 and 10) 70 The effect of the conclusion that the caravans included the annexes and tropical roofs was that if, as the primary judge found, the proximate cause of the damage was hail, then, subject to one matter to which I will come, the appellants' recovery in respect of the damage to the caravans was limited to $100,000: E15. 71 Mr Seton's primary submission in relation to these grounds of appeal was that the statement in the Agreed Facts that the damage to the caravans and annexes was caused by "storm including hail and torrential rain" conclusively determined the issue of the proximate cause of the damage. He argued that the Agreed Facts disclosed at least two proximate causes of the damage, torrential rain and hail, and that it was not possible to single out hail as the "sole proximate cause". He contended that the evidence also supported the conclusion that the damage was caused by a storm which included wind, rain and hail. 72 Mr Seton did not take the Court to the detail of the evidence concerning how the caravans were damaged. He submitted that, in essence, rain got in either through open hatches, broken windows or split seams or pitted walls. While he conceded it was the hail that created holes in the caravans through which water could penetrate, he argued that it was the driving force of the wind that enabled the hail to travel horizontally and at a velocity sufficient to cause that penetration. Accordingly each of the wind, rain and hail was a proximate cause of the damage, so that E15 did not apply. 73 At the heel of the hunt Mr Seton sought to rely on a letter from the respondent to a loss adjuster dealing, inter alia, with whether the Policy covered damage to broken windows and resultant water damage and which potentially raised a construction of E15 different from that advanced at trial or in his written submissions on appeal. He also sought to raise, rather faintly I thought, an argument that the water damage to the caravans was caused by it entering through the hatches in the caravans under the tropical roofs. Neither of these arguments had been relied upon before the primary judge. Each involved factual issues which could have led to the respondent conducting its case differently at trial. The appellants cannot raise them for the first time on appeal. 74 Finally Mr Seton submitted the respondent bore the onus of proving that the damage was caused by hail alone and had failed to discharge that onus.

[105]

Causation: consideration 76 In considering the proximate cause of loss in the insurance context, the Court has regard to the reality, predominance and efficiency of a cause, rather than proximity in time: HIH Casualty & General Insurance Limited v Waterwell Shipping (at 608) per Sheller JA (Beazley and Stein JJA agreeing); see generally Lasermax Engineering Pty Limited v QBE Insurance (Australia) Limited [2005] NSWCA 66 (at [39]ff) per McColl JA (Ipp and Tobias JJA agreeing). The Court applies common sense standards in determining what is the proximate cause, approaching the question by reference to the understanding of "the man in the street, and not as either the scientist or the metaphysician, would understand it": Lasermax (at [109] - [110]). 77 The respondent bore the onus of proving that E15 applied: Trickett v Queensland Insurance Co Ltd [1936] AC 159 (at 164); see also Provincial Insurance (at 545) per Kirby P; State Government Insurance Commission v Lane (1997) 68 SASR 257 (at 260) per Debelle J (Cox and Millhouse JJ agreeing). 78 In my view the primary judge's conclusion (at [84]) that the reference to "hail" in E15 meant damaged by hail in the sense that hail was the proximate cause of the damage was correct. Damage which was caused by hail, without, at least, elements of a storm coinciding, would be a meteorological anomaly. In other words, the Policy was looking at the situation where hail fell as part of a storm but, in the circumstances, was the proximate cause of the damage. 79 The primary judge concluded that hail was the proximate cause of the damage and, accordingly, sub silentio, held the respondent had discharged its burden of proof in this respect. 80 His Honour did not regard the Agreed Facts as determining the issue of proximate cause. As his Honour observed (at [78]), Mr Seton approbated and reprobated on this question, at times asserting the Agreed Facts were binding, and at others accepting the court should determine the issue on the basis of the evidence. Mr Seton did not challenge his Honour's assessment of the conduct of the trial in this respect. I would also agree with his Honour "that the agreed facts [paragraphs xii and xiv] are imprecise in failing to identify precisely how damage was caused in the ways suggested" and that it was necessary to look at the evidence to determine the proximate cause issue: primary judgment (at [79]) - [80]). 81 His Honour found (at [89]) that the sequence of events required to attract the operation of E15, and, therefore, the limit of $100,000 that clause prescribed, involved "(1) 'Damage to … Caravans (etc) … by hail'; (2) … the hail (penetrating) the entire thickness of the material damaged; (3) causing water to enter." He concluded that sequence was established by the following evidence: "91 In paragraph 6 of his affidavit sworn on 1 October 2003, Mr Caine says: 'On 16/1/02 a severe hailstorm struck Chinderah and caused severe damage to our business including hail damage to our caravans and their annexes'. In paragraph 14 of his affidavit sworn on 8 October 2004, he says:

[113]

99 It is no answer that the hail fell during a storm which also involved torrential rain and high winds. Hailstorms almost always involve rain and wind. The policy singles out hail and specifically excludes cover for that risk, except in the circumstance in which the hail penetrates the entire thickness of the damaged matter, whereupon the $100,000 limit applies." 82 This analysis of the evidence compellingly demonstrates, in my view, that it was the penetration of the hail into, or through, the various fabrics of which the caravans (including the tropical roofs and annexes) were constructed which was the proximate cause of the damage to the caravans. Indeed Mr Seton did not really challenge the proposition that hail was a proximate cause of the damage. Rather, he argued that it was but one of several proximate causes, the others being the wind and the rain. In my view Mr Seton did not establish error in the primary judge's analysis of the evidence and his conclusion on proximate cause. 83 However, assuming Mr Seton is correct and the proximate cause of the damage was the concurrence of wind, rain and hail then, in my view, the principle the respondent invokes in its Notice of Contention that where there are two causes, one covered and the other excluded, the insurer is not liable, would arguably exclude the appellants from recovering: see Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd; HIH Casualty & General Insurance Ltd v Waterwell Shipping Incorp (at 610). 84 The Wayne Tank principle was recently considered by Allsop J (with whom Kiefel and Stone JJ agreed) in McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; (2007) 157 FCR 402 (at [80] ff). His Honour explained (at [93]) that the principle comes into play where there are "two proximate causes which are concurrent and interdependent, in the sense that neither would have caused the loss without the other … the two causes can be seen as inseparable and so, in effect, as joint". After analysing the cases considered in Wayne Tank, texts and later cases, his Honour concluded: "109 In these cases, even though it could be posited that the damage may or would have occurred in any event by the cause that was not excluded, the fact is that the policy in each case was construed as excluding damage caused in a particular way. As a matter of fact the damage was caused in that way (whether or not there was another concurrent cause). Thus, recognising the limits of the cover agreed upon, the loss fell outside the terms of the policy. Wayne Tank has become the best known illustration of this result. But the result is not the consequence of the application of a principle other than that which truly underlay Wayne Tank - the ascertainment and application of the contractual intentions of the parties." (emphasis added) 85 I have already set out the definition of "Damage" which would clearly extend to damage caused by wind and rainwater. It was not suggested that E14 was a relevant exclusion. This was, therefore, a Policy in which cover was provided for damage caused by wind and rainwater, but excluded (save in restricted circumstances) for damage caused by hail. Mr Seton submitted that Wayne Tank did not apply because there were probably three or four proximate causes. I do not understand the Wayne Tank principle to be constrained by the number of proximate causes. Rather, it applies wherever there is more than one concurrent and interdependent proximate cause, one or more of which is covered, while one (or possibly more) is excluded. In such cases the court construes the parties' intention to have been that the loss will not be covered. In the present case, on Mr Seton's argument, the forces of the storm, the wind, hail and rain were interdependent proximate causes. That attracts the operation of the Wayne Tank principle.

[114]

86 Thus, even if Mr Seton's argument is correct and the concurrent and interdependent forces of the storm, the wind, rain and hail, were proximate causes of the damage, the appellants could not recover more than they have because cover for hail damage was prima facie excluded. Cover was provided if, as the primary judge found occurred in this case, the hail penetrated the entire thickness of the material damaged, causing water to enter, in which case the respondent's liability was limited to $100,000: E15. 87 It is unnecessary to reach a final conclusion on this point. There may be an argument as to whether Wayne Tank applies because E15 was a hybrid of an exclusion clause and one limiting liability. This was not argued and should be left for determination to an occasion where it is a live issue. 88 Grounds 8, 9 and 10 should be rejected. Extra costs of reinstatement: D5 (grounds 1 and 2) 89 Mr Seton submitted that on the proper construction of D5 the appellants were entitled to recover, in addition to the sum of $100,000 the respondent had paid, extra costs of reinstatement and that the amount they were entitled to recover under this head was not subject to any monetary limit. He also complained the primary judge's reasons were inadequate because he did not deal with the D5 issue. 90 Mr Kelly accepted that the primary judge did not deal directly with D5, but argued that his judgment (at para [102]) exhibited the relevant reasoning and his omission could be seen as a slip at the end of a complex judgment which had no bearing on the final outcome. 91 Mr Seton submitted that even if paragraph [102] could be read as referring to D5, the primary judge had wrongly applied the $100,000 limit in E15 to the extra costs of reinstatement covered by D5. He argued that the Policy did not limit amounts recoverable under cl D5, pointing out that: (a) the Schedule did not refer to any limit/sub-limit of recovery under Clause D; (b) the Schedule made no reference to costs of reinstatement; (c) while D3 set out the Basis of Settlement, D5 referred to the insurer "also" paying the "extra" cost of reinstatement which were costs incurred by the appellants in complying with the requirements of any statute or regulation or of any municipal or statutory authority; accordingly these payments were additional to payments covered by D3; (d) the last sentence in D5(c) contemplated that the Policy may provide no limit of liability for damaged property or that there may be no relevant Sub-Limit of Liability, in which case the insurer's liability was restricted to the actual extra costs; (e) the fact that G2, the average/under-insurance clause, did not apply to amounts recoverable under D5 supported the contention that any extra costs of reinstatement was not part of the overall limit of liability of $655,300 or any of the Declared Asset figures. He argued it made no sense to treat the extra cost of reinstatement as being outside the overall limit of liability for one purpose and as forming part of a limit/sub-limit for other purposes; and (f) to treat the "Declared Assets" figures in the policy schedule as a limit or sub-limit that applied to the costs of reinstatement was an erroneous treatment of the declared assets as an exhaustive list of all items to be insured ignoring other items (including the costs of reinstatement) and to ignore the definition of "property insured" which is not tied to/limited by the list of items/amounts in the Schedule. 92 I have already substantially rejected argument (f), but not for reasons which affect the implications of the omission of extra costs of reinstatement from the Schedule. However it is relevant to note in this regard that for the purposes of G2, declared values at any Situation did not include "any allowance for the Extra Cost of Reinstatement referred to in Clause D5, or for the costs and expenses referred to in the Additional Cover provided in Clauses C1.(b), C1.(c) and C2": G2(2)(d).

[123]

109 An Additional Cover clause such as C is an automatic extension to the Policy which operates in addition to the main cover: Kelly and Ball (at [12.0060]). So much is apparent from the extent of cover clause which I repeat for convenience: "We will indemnify you against Damage occurring to Property Insured during the Period of Insurance and shall provide the additional cover referred to in Clause C up to the value of the Limit(s) and Sub-Limit(s) of Liability referred to in the Schedule , but subject to: … 2. the Limit(s) and Sub-Limits referred to in the Schedule… … 4. the exclusion of certain items of property as referred to in Clause E…." (emphasis added) 110 However the statement that an Additional Cover clause operates "in addition to the main cover" is a general statement, which must succumb to the express terms of any policy. In the present case, the Additional Cover costs are capped by the Limit(s) of Liability in the Schedule (B2) and their recovery is subject to the exclusions in E (B4). 111 The introductory words to cl C should also be recalled. They provided that the Additional Cover was attracted: " If Damage to Property Insured occurs in circumstances giving rise to indemnity under Section 1 of this Policy , We will also pay the following additional costs …" (emphasis added) 112 Thus recovery of additional costs was contingent on the respondent being liable to indemnify the appellants under Section 1. Thus in order to determine the extent to which the appellants could recover cl C costs, it is necessary to determine the circumstances in which they were entitled to the indemnity under the Policy. 113 The combined effect of the extent of cover clause and cl C can be illustrated by a simple example. Assume the caravans had been damaged by rain and a relevant statutory requirement dealing with cyclone rating had not been complied with so that E14 applied and the insured could not recover anything in respect of that damage. The Damage to the Property Insured would not have occurred in circumstances giving rise to indemnity under Section 1 so the pre-condition to Additional Cover liability would not exist. Such costs could only be recovered, in other words, if there was a principal head of recovery to which the Policy responded in respect of which the cl C costs would be an "additional" amount. In such circumstances any Limit of Liability in the Schedule would have no work to do because the operation of the E14 meant the damage to the caravans was not covered and, correspondingly, there was no head of recovery on which the Additional Cover costs could piggyback. 114 Applying the same reasoning one finds that the appellants' entitlement to indemnity for the caravans, while prima facie within the extent of cover clause in cl B, was caught by B4 which made the insuring clause subject to cl E. Thus the circumstances which gave rise to indemnity under Section 1 were found in E15 under which their recovery for the caravans was capped at $100,000 because the damage was caused by hail which penetrated the entire thickness of the material damaged. As E15 provided the framework for the respondent's liability to indemnify the appellants under the Policy for caravans damage, there is no relevant Limit of Liability in the Schedule. 115 If Mr Seton's argument was correct then the appellants could recover more than the maximum amount the respondent is liable to pay for the caravans damage, even though the clear intention of the Policy is that the Additional Cover costs be capped by the Limit of Liability, or any relevant exclusion, applicable to that insured Property. The anomaly of such an outcome tells strongly against his argument. 116 Grounds 4 and 5 should be rejected.

[125]

Notice of contention 118 In the light of the decisions I have reached on the appeal, it is also unnecessary to deal with Ground 1 (Other Structures/averaging) of the Notice of Contention. I have already indicated my views on Ground 3 of that document, the Wayne Tank argument. 119 It is not entirely clear whether the respondent relies on Ground 2 in defeasance of the D5 claim. Ground 2 relies on the operation of a Release dated 2 October 2002 as having released any liability to further indemnify the appellants in relation to the caravans. However as the point can, in my view, be disposed of shortly I shall address it. 120 On 10 July 2002 the respondent sent the appellants a letter setting out its view as to its liability under the Policy. At that stage it was disputing liability on the basis the damage to the caravans was caused by hail which had not penetrated the caravans. In about October 2002 the respondent sent the appellants a release. Mr Caine altered the amount set out in the document to one which he thought represented the amount a loss assessor had estimated and appears to have dated it 2 October 2002. The release was expressed to be subject to acceptance by the insurer. On 10 October the appellants' solicitor wrote to the respondent advising the "offer of settlement made recently is not acceptable". The next day the respondent replied re-affirming that its letter of 10 July outlined its position. On 6 February 2003 the respondent wrote to the appellants accepting it had to indemnify them in the amount of $100,000, an amount it paid the next day. 121 At that stage the appellants were unaware of the extra costs of reinstatement. That amount only came to the appellants' attention when they received a letter from Tweed Shire Council dated 28 May 2003. 122 The parties advanced numerous arguments about the application of the Release. It is unnecessary to deal with them. The Release is inapplicable because deeds of compromise of ascertained specific questions are not construed "so as to deprive any party thereto of any right not then in dispute and not in contemplation by any of the parties to such deed": Cloutte v Storey [1911] 1 Ch 18 (at 34) applied in Grant v John Grant & Sons Pty Ltd [1954] HCA 23; (1954) 91 CLR 112 (at 127 - 128) per Dixon CJ, Fullagar, Kitto and Taylor JJ. As the extra costs of reinstatement were not in the parties' contemplation at the time the Release was executed, they cannot be caught by it.

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Cases Cited (26)

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